HP (NYSE: HPQ)
|
● |
Fiscal 2019 GAAP diluted net earnings per share (“EPS”) of $2.07,
below the previously provided outlook of $2.31 to $2.35 per
share |
|
|
|
|
● |
Fiscal 2019 non-GAAP diluted net EPS of $2.24, above the previously
provided outlook of $2.18 to $2.22 per share |
|
|
|
|
● |
Fiscal 2019 net revenue of $58.8 billion, up 0.5% from the
prior-year period |
|
|
|
|
● |
Fiscal 2019 net cash provided by operating activities of $4.7
billion, free cash flow of $4.0 billion |
|
|
|
|
● |
Fiscal 2019 returned $3.4 billion to shareholders in the form of
share repurchases and dividends |
|
|
|
|
● |
Fourth quarter GAAP diluted net EPS of $0.26, below the previously
provided outlook of $0.51 to $0.55 per share |
|
|
|
|
● |
Fourth quarter non-GAAP diluted net EPS of $0.60, above the
previously provided outlook of $0.55 to $0.59 per share |
|
|
|
|
● |
Fourth quarter net revenue of $15.4 billion, up 0.3% from the
prior-year period |
|
|
|
|
● |
Fourth quarter net cash provided by operating activities of $0.6
billion, free cash flow of $0.4 billion |
|
|
|
|
● |
Fourth quarter returned $0.7 billion to shareholders in the form of
share repurchases and dividends |
| HP Inc.'s
fiscal 2019 full-year and fourth quarter financial
performance |
|
|
FY19 |
|
FY18 |
|
Y/Y |
|
Q4 FY19 |
|
Q4 FY18 |
|
Y/Y |
|
GAAP net revenue ($B) |
$ |
58.8 |
|
$ |
58.5 |
|
0.5% |
|
$ |
15.4 |
|
$ |
15.4 |
|
0.3% |
| GAAP
operating margin |
6.6% |
|
6.6% |
|
- |
|
6.1% |
|
6.5% |
|
(0.4) pts |
| GAAP net
earnings ($B) |
$ |
3.2 |
|
$ |
5.3 |
|
(41)% |
|
$ |
0.4 |
|
$ |
1.5 |
|
(73)% |
| GAAP
diluted net EPS |
$ |
2.07 |
|
$ |
3.26 |
|
(37)% |
|
$ |
0.26 |
|
$ |
0.91 |
|
(71)% |
| Non-GAAP
operating margin |
7.3% |
|
7.1% |
|
0.2 pts |
|
7.3% |
|
7.0% |
|
0.3 pts |
| Non-GAAP
net earnings ($B) |
$ |
3.4 |
|
$ |
3.3 |
|
3% |
|
$ |
0.9 |
|
$ |
0.9 |
|
4% |
| Non-GAAP
diluted net EPS |
$ |
2.24 |
|
$ |
2.02 |
|
11% |
|
$ |
0.60 |
|
$ |
0.54 |
|
11% |
| Net cash
provided by operating activities ($B) |
$ |
4.7 |
|
$ |
4.5 |
|
3% |
|
$ |
0.6 |
|
$ |
1.0 |
|
(39)% |
| Free
cash flow ($B) |
$ |
4.0 |
|
$ |
4.2 |
|
(4)% |
|
$ |
0.4 |
|
$ |
0.8 |
|
(53)% |
Notes to tableInformation about HP Inc.'s use of non-GAAP
financial information is provided under "Use of non-GAAP financial
information" below.
Net revenue and EPS resultsHP Inc. and its
subsidiaries (“HP”) announced fiscal 2019 net revenue of $58.8
billion, up 0.5% (up 2.0% in constant currency) from the prior-year
period.
Fiscal 2019 GAAP diluted net EPS was $2.07, down from $3.26 in
the prior-year period and below the previously provided outlook of
$2.31 to $2.35. Fiscal 2019 non-GAAP diluted net EPS was $2.24, up
from $2.02 in the prior-year period and above the previously
provided outlook of $2.18 to $2.22. Fiscal 2019 non-GAAP net
earnings and non-GAAP diluted net EPS exclude after-tax adjustments
of $257 million, or $0.17 per diluted share, related to
restructuring and other charges, acquisition-related charges,
amortization of intangible assets, non-operating retirement-related
credits/(charges), and tax adjustments.
Fourth quarter net revenue was $15.4 billion, up 0.3% (up 1.8%
in constant currency) from the prior-year period.
Fourth quarter GAAP diluted net EPS was $0.26, down from $0.91
in the prior-year period and below the previously provided outlook
of $0.51 to $0.55. Fourth quarter non-GAAP diluted net EPS was
$0.60, up from $0.54 in the prior-year period and above the
previously provided outlook of $0.55 to $0.59. Fourth quarter
non-GAAP net earnings and non-GAAP diluted net EPS exclude
after-tax adjustments of $511 million, or $0.34 per diluted share,
related to restructuring and other charges, acquisition-related
charges, amortization of intangible assets, non-operating
retirement-related credits/(charges), and tax adjustments.
“2019 marks our third consecutive year of revenue, non-GAAP
operating profit and non-GAAP earnings growth, with non-GAAP EPS up
11% and strong free cash flow of $4 billion,” said Enrique Lores,
President and CEO, HP Inc. “We delivered an excellent Q4, with 11%
non-GAAP EPS growth. Our strategy is working, and we are confident
in our business heading into FY20.”
Asset managementHP generated $4.7 billion in
net cash provided by operating activities and $4.0 billion of free
cash flow in fiscal 2019. Free cash flow includes net cash provided
by operating activities and net investments in property, plant and
equipment of $0.7 billion. HP utilized approximately $2.4 billion
of cash during fiscal 2019 to repurchase approximately 118 million
shares of common stock in the open market. When combined with the
almost $1.0 billion of cash used to pay dividends, HP returned 85%
of its free cash flow to shareholders in fiscal 2019.
HP’s net cash provided by operating activities in the fourth
quarter of fiscal 2019 was $0.6 billion. Accounts receivable ended
the quarter at $6.0 billion, up 2 days quarter over quarter to 35
days. Inventory ended the quarter at $5.7 billion, down 3 days
quarter over quarter to 41 days. Accounts payable ended the quarter
at $14.8 billion, down 6 days quarter over quarter to 107 days.
HP generated $0.4 billion of free cash flow in the fourth
quarter. Free cash flow includes net cash provided by operating
activities and net investments in property, plant and equipment of
$0.2 billion.
HP’s dividend payment of $0.1602 per share in the fourth quarter
resulted in cash usage of $0.2 billion. HP also utilized $0.5
billion of cash during the quarter to repurchase approximately 25
million shares of common stock in the open market. As a result, HP
returned 178% of its fourth quarter free cash flow to shareholders.
HP exited the quarter with $4.5 billion in gross cash, which
includes cash and cash equivalents.
Fiscal 2019 fourth quarter segment results
- Personal Systems net revenue was up 4% year over year (up 5% in
constant currency) with a 5.3% operating margin. Commercial net
revenue increased 8% and Consumer net revenue decreased 4%. Total
units were up 8% with Notebooks units up 9% and Desktops units up
5%.
- Printing net revenue was down 6% year over year (down 5% in
constant currency) with a 15.6% operating margin. Total hardware
units were down 9% with Commercial hardware units down 1% and
Consumer hardware units down 10%. Supplies net revenue was down 7%
(down 7% in constant currency).
OutlookFor the fiscal 2020 first quarter, HP
estimates GAAP diluted net EPS to be in the range of $0.39 to $0.42
and non-GAAP diluted net EPS to be in the range of $0.53 to $0.56.
Fiscal 2020 first quarter non-GAAP diluted net EPS estimates
exclude $0.14 per diluted share, primarily related to restructuring
and other charges, acquisition-related charges, defined benefit
plan settlement charges, amortization of intangible assets,
non-operating retirement-related credits/(charges), tax adjustments
and the related tax impact on these items.
For fiscal 2020, HP estimates GAAP diluted net EPS to be in the
range of $2.00 to $2.10 and non-GAAP diluted net EPS to be in the
range of $2.24 to $2.32. Fiscal 2020 non-GAAP diluted net EPS
estimates exclude $0.22 to $0.24 per diluted share, primarily
related to restructuring and other charges, acquisition-related
charges, defined benefit plan settlement charges, amortization of
intangible assets, non-operating retirement-related
credits/(charges), tax adjustments and the related tax impact on
these items.
More information on HP's earnings, including additional
financial analysis and an earnings overview presentation, is
available on HP's Investor Relations website at
www.hp.com/investor/home.
HP's FY19 Q4 earnings conference call is accessible via an audio
webcast at www.hp.com/investor/2019Q4Webcast.
About HP Inc.HP Inc. (NYSE: HPQ) creates
technology that makes life better for everyone, everywhere. Through
our product and service portfolio of personal systems, printers and
3D printing solutions, we engineer experiences that amaze. More
information about HP Inc. is available at hp.com.
Use of non-GAAP financial informationTo
supplement HP’s consolidated condensed financial statements
presented on a generally accepted accounting principles (“GAAP”)
basis, HP provides net revenue on a constant currency basis,
non-GAAP total operating expense, non-GAAP operating profit,
non-GAAP operating margin, non-GAAP tax rate, non-GAAP net
earnings, non-GAAP diluted net EPS, free cash flow, gross cash and
net cash (debt) financial measures. HP also provides forecasts of
non-GAAP diluted net EPS and free cash flow. Reconciliations of
these non-GAAP financial measures to the most directly comparable
GAAP financial measures are included in the tables below or
elsewhere in the materials accompanying this news release. In
addition, an explanation of the ways in which HP’s management uses
these non-GAAP measures to evaluate its business, the substance
behind HP’s decision to use these non-GAAP measures, the material
limitations associated with the use of these non-GAAP measures, the
manner in which HP’s management compensates for those limitations,
and the substantive reasons why HP’s management believes that these
non-GAAP measures provide useful information to investors is
included under “Use of non-GAAP financial measures” after the
tables below. This additional non-GAAP financial information is not
meant to be considered in isolation or as a substitute for net
revenue, operating expense, operating profit, operating margin, tax
rate, net earnings, diluted net EPS, cash provided by operating
activities or cash and cash equivalents prepared in accordance with
GAAP.
Forward-looking statementsThis news release
contains forward-looking statements that involve risks,
uncertainties and assumptions. If the risks or uncertainties ever
materialize or the assumptions prove incorrect, the results of HP
and its consolidated subsidiaries may differ materially from those
expressed or implied by such forward-looking statements and
assumptions.
All statements other than statements of historical fact are
statements that could be deemed forward-looking statements,
including but not limited to any projections of net revenue,
margins, expenses, effective tax rates, net earnings, net EPS, cash
flows, benefit plan funding, deferred taxes, share repurchases,
foreign currency exchange rates or other financial items; any
projections of the amount, timing or impact of cost savings or
restructuring and other charges; any statements of the plans,
strategies and objectives of management for future operations,
including, but not limited to, our business model and digital
transformation, our sustainability goals, our go-to-market
strategy, the execution of restructuring plans and any resulting
cost savings, net revenue or profitability improvements; any
statements concerning the expected development, performance, market
share or competitive performance relating to products or services;
any statements regarding current or future macroeconomic trends or
events and the impact of those trends and events on HP and its
financial performance; any statements regarding pending
investigations, claims or disputes; any statements of expectation
or belief, including with respect to the timing and expected
benefits of acquisitions and other business combination and
investment transactions; and any statements of assumptions
underlying any of the foregoing.
Risks, uncertainties and assumptions include the need to address
the many challenges facing HP’s businesses; the competitive
pressures faced by HP’s businesses; risks associated with executing
HP’s strategy, business model changes and digital transformation;
successfully innovating, developing and executing HP’s go-to-market
strategy, including online, omnichannel and contractual sales, in
an evolving distribution and reseller landscape; successfully
competing and maintaining the value proposition of HP’s products,
including supplies; the impact of macroeconomic and geopolitical
trends and events; the need to manage third-party suppliers, manage
HP’s global, multi-tier distribution network, limit potential
misuse of pricing programs by HP’s channel partners, adapt to new
or changing marketplaces and effectively deliver HP’s services;
challenges to HP’s ability to accurately forecast inventories,
demand and pricing, which may be due to HP’s multi-tiered channel,
sales of HP’s products to unauthorized resellers or unauthorized
resale of HP’s products; the protection of HP’s intellectual
property assets, including intellectual property licensed from
third parties; risks associated with HP’s international operations;
the development and transition of new products and services and the
enhancement of existing products and services to meet customer
needs and respond to emerging technological trends; the execution
and performance of contracts by HP and its suppliers, customers,
clients and partners; the hiring and retention of key employees;
integration and other risks associated with business combination
and investment transactions; the results of the restructuring
plans, including estimates and assumptions related to the cost
(including any possible disruption of HP’s business) and the
anticipated benefits of the restructuring plans; the impact of
changes in tax laws, including uncertainties related to the
interpretation and application of the Tax Cuts and Jobs Act of 2017
on HP's tax obligations and effective tax rate; the resolution of
pending investigations, claims and disputes; and other risks that
are described in HP’s Annual Report on Form 10-K for the fiscal
year ended October 31, 2018, and HP’s other filings with the
Securities and Exchange Commission.
As in prior periods, the financial information set forth in this
release, including any tax-related items, reflects estimates based
on information available at this time. While HP believes these
estimates to be reasonable, these amounts could differ materially
from reported amounts in HP’s Annual Report on Form 10-K for the
fiscal years ended October 31, 2019 and October 31, 2020, Quarterly
Report on Form 10-Q for the fiscal quarter ended January 31, 2020,
and HP’s other filings with the Securities and Exchange Commission.
HP assumes no obligation and does not intend to update these
forward-looking statements. HP’s Investor Relations website at
http://www.investor.hp.com contains a significant amount of
information about HP, including financial and other information for
investors. HP encourages investors to visit its website from time
to time, as information is updated, and new information is
posted.
| |
|
HP INC. AND SUBSIDIARIESCONSOLIDATED CONDENSED STATEMENTS OF
EARNINGS(Unaudited)(In millions, except per share amounts) |
| |
| |
Three months ended |
| |
October 31, 2019 |
|
July 31, 2019 |
|
October 31, 2018 |
|
Net revenue |
$ |
15,407 |
|
|
$ |
14,603 |
|
|
$ |
15,366 |
|
| Costs and expenses: |
|
|
|
|
|
|
Cost of revenue |
12,483 |
|
|
11,698 |
|
|
12,669 |
|
|
Research and development |
389 |
|
|
413 |
|
|
354 |
|
|
Selling, general and administrative(a) |
1,405 |
|
|
1,376 |
|
|
1,263 |
|
|
Restructuring and other charges |
134 |
|
|
17 |
|
|
40 |
|
|
Acquisition-related charges (credits) |
23 |
|
|
(9 |
) |
|
26 |
|
|
Amortization of intangible assets |
29 |
|
|
29 |
|
|
20 |
|
|
Total costs and expenses |
14,463 |
|
|
13,524 |
|
|
14,372 |
|
| |
|
|
|
|
|
| Earnings from operations |
944 |
|
|
1,079 |
|
|
994 |
|
| Interest and other,
net(a) |
(452 |
) |
|
(831 |
) |
|
13 |
|
| Earnings before taxes |
492 |
|
|
248 |
|
|
1,007 |
|
| (Provision for) benefit from
taxes |
(104 |
) |
|
931 |
|
|
444 |
|
| Net earnings |
$ |
388 |
|
|
$ |
1,179 |
|
|
$ |
1,451 |
|
| |
|
|
|
|
|
| Net earnings per share: |
|
|
|
|
|
|
Basic |
$ |
0.26 |
|
|
$ |
0.79 |
|
|
$ |
0.92 |
|
|
Diluted |
$ |
0.26 |
|
|
$ |
0.78 |
|
|
$ |
0.91 |
|
| |
|
|
|
|
|
| Cash dividends declared per
share |
$ |
— |
|
|
$ |
0.32 |
|
|
$ |
— |
|
| |
|
|
|
|
|
| Weighted-average shares used
to compute net earnings per share: |
|
|
|
|
|
|
Basic |
1,476 |
|
|
1,499 |
|
|
1,578 |
|
|
Diluted |
1,486 |
|
|
1,508 |
|
|
1,598 |
|
(a) Pursuant to adoption of Accounting Standard Update
("ASU") 2017-07, “Compensation - Retirement Benefits (Topic
715): Improving the Presentation of Net Periodic Pension Cost and
Net Periodic Post-retirement Benefit Cost”, in the first quarter of
fiscal year 2019, HP now reclassifies all components (excluding
service cost component) of net periodic benefit cost from Selling,
general and administrative expenses to Interest and other, net. HP
reflected this change in prior reporting periods on an as-if
basis.
| |
|
HP INC. AND SUBSIDIARIESCONSOLIDATED CONDENSED STATEMENTS OF
EARNINGS(Unaudited)(In millions, except per share amounts) |
| |
| |
Twelve months ended |
| |
October 31, 2019 |
|
October 31, 2018 |
|
Net revenue |
$ |
58,756 |
|
|
$ |
58,472 |
|
| Costs and expenses: |
|
|
|
|
Cost of revenue |
47,586 |
|
|
47,803 |
|
|
Research and development |
1,499 |
|
|
1,404 |
|
|
Selling, general and administrative(a) |
5,368 |
|
|
5,099 |
|
|
Restructuring and other charges |
275 |
|
|
132 |
|
|
Acquisition-related charges |
35 |
|
|
123 |
|
|
Amortization of intangible assets |
116 |
|
|
80 |
|
|
Total costs and expenses |
54,879 |
|
|
54,641 |
|
| |
|
|
|
| Earnings from operations |
3,877 |
|
|
3,831 |
|
| Interest and other,
net(a) |
(1,354 |
) |
|
(818 |
) |
| Earnings before taxes |
2,523 |
|
|
3,013 |
|
| Benefit from taxes |
629 |
|
|
2,314 |
|
| Net earnings |
$ |
3,152 |
|
|
$ |
5,327 |
|
| |
|
|
|
| Net earnings per share: |
|
|
|
|
Basic |
$ |
2.08 |
|
|
$ |
3.30 |
|
|
Diluted |
$ |
2.07 |
|
|
$ |
3.26 |
|
| |
|
|
|
| Cash dividends declared per
share |
$ |
0.64 |
|
|
$ |
0.56 |
|
| |
|
|
|
| Weighted-average shares used
to compute net earnings per share: |
|
|
|
|
Basic |
1,515 |
|
|
1,615 |
|
|
Diluted |
1,524 |
|
|
1,634 |
|
(a) Pursuant to adoption of ASU 2017-07,
“Compensation - Retirement Benefits (Topic 715): Improving the
Presentation of Net Periodic Pension Cost and Net Periodic
Post-retirement Benefit Cost”, in the first quarter of fiscal year
2019, HP now reclassifies all components (excluding service cost
component) of net periodic benefit cost from Selling, general and
administrative expenses to Interest and other, net. HP reflected
this change in prior reporting periods on an as-if basis.
| |
|
HP INC. AND SUBSIDIARIESADJUSTMENTS TO GAAP NET EARNINGS,
EARNINGS FROM OPERATIONS,OPERATING MARGIN AND DILUTED NET EARNINGS
PER SHARE(Unaudited)(In millions, except per share amounts) |
| |
| |
Three months ended |
| |
October 31, 2019 |
|
July 31, 2019 |
|
October 31, 2018 |
| |
Amounts |
|
Diluted net earnings per share |
|
Amounts |
|
Diluted net earnings per share |
|
Amounts |
|
Diluted net earnings per share |
|
GAAP net earnings |
$ |
388 |
|
|
$ |
0.26 |
|
|
$ |
1,179 |
|
|
$ |
0.78 |
|
|
$ |
1,451 |
|
|
$ |
0.91 |
|
| Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other charges |
134 |
|
|
0.09 |
|
|
17 |
|
|
0.02 |
|
|
40 |
|
|
0.02 |
|
|
Acquisition-related charges (credits) |
23 |
|
|
0.02 |
|
|
(9 |
) |
|
(0.01 |
) |
|
26 |
|
|
0.02 |
|
|
Amortization of intangible assets |
29 |
|
|
0.02 |
|
|
29 |
|
|
0.02 |
|
|
20 |
|
|
0.01 |
|
|
Non-operating retirement-related credits |
(25 |
) |
|
(0.02 |
) |
|
(21 |
) |
|
(0.01 |
) |
|
(54 |
) |
|
(0.03 |
) |
|
Defined benefit plan settlement charges |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
5 |
|
|
— |
|
|
Tax adjustments(a) |
350 |
|
|
0.23 |
|
|
(315 |
) |
|
(0.22 |
) |
|
(623 |
) |
|
(0.39 |
) |
| Non-GAAP net earnings |
$ |
899 |
|
|
$ |
0.60 |
|
|
$ |
880 |
|
|
$ |
0.58 |
|
|
$ |
865 |
|
|
$ |
0.54 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| GAAP earnings from
operations(b) |
$ |
944 |
|
|
|
|
$ |
1,079 |
|
|
|
|
$ |
994 |
|
|
|
| Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and other charges |
134 |
|
|
|
|
17 |
|
|
|
|
40 |
|
|
|
|
Acquisition-related charges (credits) |
23 |
|
|
|
|
(9 |
) |
|
|
|
26 |
|
|
|
|
Amortization of intangible assets |
29 |
|
|
|
|
29 |
|
|
|
|
20 |
|
|
|
| Non-GAAP earnings from
operations |
$ |
1,130 |
|
|
|
|
$ |
1,116 |
|
|
|
|
$ |
1,080 |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| GAAP operating margin(b) |
6 |
% |
|
|
|
7 |
% |
|
|
|
6 |
% |
|
|
| Non-GAAP adjustments |
1 |
% |
|
|
|
1 |
% |
|
|
|
1 |
% |
|
|
| Non-GAAP operating margin |
7 |
% |
|
|
|
8 |
% |
|
|
|
7 |
% |
|
|
(a) Includes tax impact on non-GAAP adjustments.
(b) Pursuant to adoption of ASU 2017-07,
“Compensation - Retirement Benefits (Topic 715): Improving the
Presentation of Net Periodic Pension Cost and Net Periodic
Post-retirement Benefit Cost”, in the first quarter of fiscal year
2019, HP now reclassifies all components (excluding service cost
component) of net periodic benefit cost from Selling, general and
administrative expenses to Interest and other, net. HP reflected
this change in prior reporting periods on an as-if basis.
| |
|
HP INC. AND SUBSIDIARIESADJUSTMENTS TO GAAP NET EARNINGS,
EARNINGS FROM OPERATIONS,OPERATING MARGIN AND DILUTED NET EARNINGS
PER SHARE(Unaudited)(In millions, except per share amounts) |
| |
| |
Twelve months ended |
| |
October 31, 2019 |
|
October 31, 2018 |
| |
Amounts |
|
Diluted net earnings per share |
|
Amounts |
|
Diluted net earnings per share |
|
GAAP net earnings |
$ |
3,152 |
|
|
$ |
2.07 |
|
|
$ |
5,327 |
|
|
$ |
3.26 |
|
| Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
Restructuring and other charges |
275 |
|
|
0.17 |
|
|
132 |
|
|
0.08 |
|
|
Acquisition-related charges |
35 |
|
|
0.02 |
|
|
123 |
|
|
0.07 |
|
|
Amortization of intangible assets |
116 |
|
|
0.08 |
|
|
80 |
|
|
0.05 |
|
|
Non-operating retirement-related credits |
(68 |
) |
|
(0.04 |
) |
|
(219 |
) |
|
(0.13 |
) |
|
Defined benefit plan settlement charges |
— |
|
|
— |
|
|
7 |
|
|
— |
|
|
Debt extinguishment costs |
— |
|
|
— |
|
|
126 |
|
|
0.08 |
|
|
Tax adjustments(a) |
(101 |
) |
|
(0.06 |
) |
|
(2,270 |
) |
|
(1.39 |
) |
| Non-GAAP net earnings |
$ |
3,409 |
|
|
$ |
2.24 |
|
|
$ |
3,306 |
|
|
$ |
2.02 |
|
| |
|
|
|
|
|
|
|
| GAAP earnings from
operations(b) |
$ |
3,877 |
|
|
|
|
$ |
3,831 |
|
|
|
| Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
Restructuring and other charges |
275 |
|
|
|
|
132 |
|
|
|
|
Acquisition-related charges |
35 |
|
|
|
|
123 |
|
|
|
|
Amortization of intangible assets |
116 |
|
|
|
|
80 |
|
|
|
| Non-GAAP earnings from
operations |
$ |
4,303 |
|
|
|
|
$ |
4,166 |
|
|
|
| |
|
|
|
|
|
|
|
| GAAP operating margin(b) |
7 |
% |
|
|
|
7 |
% |
|
|
| Non-GAAP adjustments |
0 |
% |
|
|
|
0 |
% |
|
|
| Non-GAAP operating margin |
7 |
% |
|
|
|
7 |
% |
|
|
(a) Includes tax impact on non-GAAP adjustments.
(b) Pursuant to adoption of ASU 2017-07,
“Compensation - Retirement Benefits (Topic 715): Improving the
Presentation of Net Periodic Pension Cost and Net Periodic
Post-retirement Benefit Cost”, in the first quarter of fiscal year
2019, HP now reclassifies all components (excluding service cost
component) of net periodic benefit cost from Selling, general and
administrative expenses to Interest and other, net. HP reflected
this change in prior reporting periods on an as-if basis.
|
|
|
HP INC. AND SUBSIDIARIESCONSOLIDATED CONDENSED BALANCE
SHEETS(Unaudited)(In millions) |
|
|
|
|
As of |
| |
October 31, 2019 |
|
October 31, 2018 |
|
ASSETS |
|
|
|
| Current assets: |
|
|
|
|
Cash and cash equivalents |
$ |
4,537 |
|
|
$ |
5,166 |
|
|
Accounts receivable, net |
6,031 |
|
|
5,113 |
|
|
Inventory |
5,734 |
|
|
6,062 |
|
|
Other current assets |
3,875 |
|
|
5,046 |
|
|
Total current assets |
20,177 |
|
|
21,387 |
|
| Property, plant and equipment,
net |
2,794 |
|
|
2,198 |
|
| Goodwill |
6,372 |
|
|
5,968 |
|
| Other non-current assets |
4,124 |
|
|
5,069 |
|
| Total assets |
$ |
33,467 |
|
|
$ |
34,622 |
|
| |
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
|
|
| Current liabilities: |
|
|
|
|
Notes payable and short-term borrowings |
$ |
357 |
|
|
$ |
1,463 |
|
|
Accounts payable |
14,793 |
|
|
14,816 |
|
|
Other current liabilities |
10,143 |
|
|
8,852 |
|
|
Total current liabilities |
25,293 |
|
|
25,131 |
|
| Long-term debt |
4,780 |
|
|
4,524 |
|
| Other non-current
liabilities |
4,587 |
|
|
5,606 |
|
|
Stockholders' deficit |
(1,193 |
) |
|
(639 |
) |
| Total liabilities and
stockholders' deficit |
$ |
33,467 |
|
|
$ |
34,622 |
|
| |
|
|
|
|
|
|
|
| |
|
HP INC. AND SUBSIDIARIESCONSOLIDATED CONDENSED STATEMENTS OF
CASH FLOWS(Unaudited)(In millions) |
| |
|
| |
Three months ended |
| |
October 31, 2019 |
|
October 31, 2018 |
| Cash flows from operating
activities: |
|
|
|
|
Net earnings |
$ |
388 |
|
|
$ |
1,451 |
|
|
Adjustments to reconcile net earnings to net cash provided by
operating activities: |
|
|
|
|
Depreciation and amortization |
205 |
|
|
140 |
|
|
Stock-based compensation expense |
64 |
|
|
65 |
|
|
Restructuring and other charges |
134 |
|
|
40 |
|
|
Deferred taxes on earnings |
(192 |
) |
|
(486 |
) |
|
Other, net |
78 |
|
|
85 |
|
|
Changes in operating assets and liabilities, net of
acquisitions: |
|
|
|
|
Accounts receivable |
(739 |
) |
|
(514 |
) |
|
Inventory |
(44 |
) |
|
(15 |
) |
|
Accounts payable |
85 |
|
|
519 |
|
|
Taxes on earnings |
272 |
|
|
(412 |
) |
|
Restructuring and other |
(32 |
) |
|
(30 |
) |
|
Other assets and liabilities |
369 |
|
|
125 |
|
|
Net cash provided by operating activities |
588 |
|
|
968 |
|
| Cash flows from investing
activities: |
|
|
|
|
Investment in property, plant and equipment |
(196 |
) |
|
(187 |
) |
|
Proceeds from sale of property, plant and equipment |
— |
|
|
62 |
|
|
Purchases of available-for-sale securities and other
investments |
— |
|
|
(47 |
) |
|
Maturities and sales of available-for-sale securities and other
investments |
— |
|
|
259 |
|
|
Collateral posted for derivative instruments |
— |
|
|
(24 |
) |
|
Collateral returned for derivative instruments |
— |
|
|
24 |
|
|
Payment made in connection with business acquisitions, net of cash
acquired |
(31 |
) |
|
— |
|
|
Net cash (used in) provided by investing
activities |
(227 |
) |
|
87 |
|
| Cash flows from financing
activities: |
|
|
|
|
Payment of short-term borrowings with original maturities less than
90 days, net |
— |
|
|
(834 |
) |
|
Payment of short-term borrowings with original maturities greater
than 90 days |
— |
|
|
(412 |
) |
|
Proceeds from debt, net of issuance costs |
33 |
|
|
— |
|
|
Payment of debt |
(76 |
) |
|
(39 |
) |
|
Stock-based award activities |
(3 |
) |
|
18 |
|
|
Repurchase of common stock |
(461 |
) |
|
(598 |
) |
|
Cash dividends paid |
(236 |
) |
|
(219 |
) |
|
Net cash used in financing activities |
(743 |
) |
|
(2,084 |
) |
| Decrease in cash and cash
equivalents |
(382 |
) |
|
(1,029 |
) |
| Cash and cash equivalents at
beginning of period |
4,919 |
|
|
6,195 |
|
| Cash and cash equivalents at
end of period |
$ |
4,537 |
|
|
$ |
5,166 |
|
| |
|
|
|
|
|
|
|
| |
|
HP INC. AND SUBSIDIARIESCONSOLIDATED CONDENSED STATEMENTS OF
CASH FLOWS(Unaudited)(In millions) |
| |
|
| |
Twelve months ended |
| |
October 31, 2019 |
|
October 31, 2018 |
| Cash flows from operating
activities: |
|
|
|
|
Net earnings |
$ |
3,152 |
|
|
$ |
5,327 |
|
|
Adjustments to reconcile net earnings to net cash provided by
operating activities: |
|
|
|
|
Depreciation and amortization |
744 |
|
|
528 |
|
|
Stock-based compensation expense |
297 |
|
|
268 |
|
|
Restructuring and other charges |
275 |
|
|
132 |
|
|
Deferred taxes on earnings |
133 |
|
|
(3,653 |
) |
|
Other, net |
254 |
|
|
319 |
|
|
Changes in operating assets and liabilities, net of
acquisitions: |
|
|
|
|
Accounts receivable |
(761 |
) |
|
(491 |
) |
|
Inventory |
(68 |
) |
|
(136 |
) |
|
Accounts payable |
(53 |
) |
|
1,429 |
|
|
Taxes on earnings |
(851 |
) |
|
389 |
|
|
Restructuring and other |
(154 |
) |
|
(237 |
) |
|
Other assets and liabilities |
1,686 |
|
|
653 |
|
|
Net cash provided by operating activities |
4,654 |
|
|
4,528 |
|
| Cash flows from investing
activities: |
|
|
|
|
Investment in property, plant and equipment |
(671 |
) |
|
(546 |
) |
|
Proceeds from sale of property, plant and equipment |
— |
|
|
172 |
|
|
Purchases of available-for-sale securities and other
investments |
(80 |
) |
|
(367 |
) |
|
Maturities and sales of available-for-sale securities and other
investments |
771 |
|
|
847 |
|
|
Collateral posted for derivative instruments |
(32 |
) |
|
(1,165 |
) |
|
Collateral returned for derivative instruments |
32 |
|
|
1,379 |
|
|
Payments made in connection with business acquisitions, net of cash
acquired |
(458 |
) |
|
(1,036 |
) |
|
Net cash used in investing activities |
(438 |
) |
|
(716 |
) |
| Cash flows from financing
activities: |
|
|
|
|
(Payment of) Proceeds from short-term borrowings with original
maturities less than 90 days, net |
(856 |
) |
|
743 |
|
|
Proceeds from short-term borrowings with original maturities
greater than 90 days |
— |
|
|
712 |
|
|
Proceeds from debt, net of issuance cost |
127 |
|
|
— |
|
|
Payment of short-term borrowings with original maturities greater
than 90 days |
— |
|
|
(1,596 |
) |
|
Payment of debt |
(680 |
) |
|
(2,098 |
) |
|
Stock-based award activities |
(61 |
) |
|
52 |
|
|
Repurchase of common stock |
(2,405 |
) |
|
(2,557 |
) |
|
Cash dividends paid |
(970 |
) |
|
(899 |
) |
|
Net cash used in financing activities |
(4,845 |
) |
|
(5,643 |
) |
| Decrease in cash and cash
equivalents |
(629 |
) |
|
(1,831 |
) |
| Cash and cash equivalents at
beginning of period |
5,166 |
|
|
6,997 |
|
| Cash and cash equivalents at
end of period |
$ |
4,537 |
|
|
$ |
5,166 |
|
| |
|
|
|
|
|
|
|
| |
|
HP INC. AND SUBSIDIARIESSEGMENT/BUSINESS UNIT
INFORMATION(Unaudited)(In millions) |
| |
|
|
|
| |
Three months ended |
|
Change (%) |
| |
October 31, 2019 |
|
July 31, 2019 |
|
October 31, 2018 |
|
Q/Q |
|
Y/Y |
| Net revenue:(a) |
|
|
|
|
|
|
|
|
|
|
Notebooks |
$ |
6,280 |
|
|
$ |
5,630 |
|
|
$ |
6,165 |
|
|
12% |
|
2 % |
|
Desktops |
3,138 |
|
|
3,111 |
|
|
2,991 |
|
|
1% |
|
5 % |
|
Workstations |
649 |
|
|
609 |
|
|
577 |
|
|
7% |
|
12 % |
|
Other |
359 |
|
|
340 |
|
|
331 |
|
|
6% |
|
8 % |
|
Personal Systems |
10,426 |
|
|
9,690 |
|
|
10,064 |
|
|
8% |
|
4 % |
|
Supplies |
3,159 |
|
|
3,164 |
|
|
3,385 |
|
|
— % |
|
(7)% |
|
Commercial Hardware |
1,183 |
|
|
1,160 |
|
|
1,203 |
|
|
2% |
|
(2)% |
|
Consumer Hardware |
640 |
|
|
588 |
|
|
712 |
|
|
9% |
|
(10)% |
|
Printing |
4,982 |
|
|
4,912 |
|
|
5,300 |
|
|
1% |
|
(6)% |
| Corporate Investments(b) |
— |
|
|
1 |
|
|
2 |
|
|
NM |
|
NM |
|
Total segments net revenue |
15,408 |
|
|
14,603 |
|
|
15,366 |
|
|
6% |
|
— % |
| Other(b) |
(1 |
) |
|
— |
|
|
— |
|
|
NM |
|
NM |
|
Total net revenue |
$ |
15,407 |
|
|
$ |
14,603 |
|
|
$ |
15,366 |
|
|
6% |
|
— % |
| |
|
|
|
|
|
|
|
|
|
| Earnings before
taxes:(a)(c) |
|
|
|
|
|
|
|
|
|
|
Personal Systems |
$ |
556 |
|
|
$ |
547 |
|
|
$ |
376 |
|
|
|
|
|
|
Printing |
777 |
|
|
765 |
|
|
849 |
|
|
|
|
|
|
Corporate Investments |
(25 |
) |
|
(23 |
) |
|
(20 |
) |
|
|
|
|
|
Total segment earnings from operations |
1,308 |
|
|
1,289 |
|
|
1,205 |
|
|
|
|
|
|
Corporate and unallocated cost and other |
(114 |
) |
|
(113 |
) |
|
(60 |
) |
|
|
|
|
|
Stock-based compensation expense |
(64 |
) |
|
(60 |
) |
|
(65 |
) |
|
|
|
|
|
Restructuring and other charges |
(134 |
) |
|
(17 |
) |
|
(40 |
) |
|
|
|
|
|
Acquisition-related (charges) credits |
(23 |
) |
|
9 |
|
|
(26 |
) |
|
|
|
|
|
Amortization of intangible assets |
(29 |
) |
|
(29 |
) |
|
(20 |
) |
|
|
|
|
|
Interest and other, net |
(452 |
) |
|
(831 |
) |
|
13 |
|
|
|
|
|
|
Total earnings before taxes |
$ |
492 |
|
|
$ |
248 |
|
|
$ |
1,007 |
|
|
|
|
|
(a) Effective at the beginning of its first quarter
of fiscal year 2019, HP implemented an organizational change to
align its business unit financial reporting more closely with its
current business structure. The organizational change resulted in
the transfer of certain Samsung-branded product categories from
Commercial to Consumer within the Printing segment. HP reflected
this change to its business unit information in prior reporting
periods on an as-if basis. The reporting change had no impact to
previously reported segment net revenue, consolidated net revenue,
earnings from operations, net earnings or net EPS.
(b) "NM" represents not meaningful.
(c) Pursuant to adoption of ASU 2017-07,
“Compensation - Retirement Benefits (Topic 715): Improving the
Presentation of Net Periodic Pension Cost and Net Periodic
Post-retirement Benefit Cost”, in the first quarter of fiscal year
2019, HP now reclassifies all components (excluding service cost
component) of net periodic benefit cost from Selling, general and
administrative expenses to Interest and other, net. HP reflected
this change in prior reporting periods on an as-if basis.
| |
|
HP INC. AND SUBSIDIARIESSEGMENT/BUSINESS UNIT
INFORMATION(Unaudited)(In millions) |
| |
| |
Twelve months ended |
|
Change (%) |
| |
October 31, 2019 |
|
October 31, 2018 |
|
Y/Y |
| Net revenue:(a) |
|
|
|
|
|
|
Notebooks |
$ |
22,928 |
|
|
$ |
22,547 |
|
|
2 % |
|
Desktops |
12,046 |
|
|
11,567 |
|
|
4 % |
|
Workstations |
2,389 |
|
|
2,246 |
|
|
6 % |
|
Other |
1,331 |
|
|
1,301 |
|
|
2 % |
|
Personal Systems |
38,694 |
|
|
37,661 |
|
|
3 % |
|
Supplies |
12,921 |
|
|
13,575 |
|
|
(5)% |
|
Commercial Hardware |
4,612 |
|
|
4,514 |
|
|
2 % |
|
Consumer Hardware |
2,533 |
|
|
2,716 |
|
|
(7)% |
|
Printing |
20,066 |
|
|
20,805 |
|
|
(4)% |
| Corporate Investments(b) |
2 |
|
|
5 |
|
|
NM |
|
Total segments net revenue |
58,762 |
|
|
58,471 |
|
|
— % |
| Other(b) |
(6 |
) |
|
1 |
|
|
NM |
|
Total net revenue |
$ |
58,756 |
|
|
$ |
58,472 |
|
|
— % |
| |
|
|
|
|
|
| Earnings before
taxes:(a)(c) |
|
|
|
|
|
|
Personal Systems |
$ |
1,898 |
|
|
$ |
1,402 |
|
|
|
|
Printing |
3,202 |
|
|
3,314 |
|
|
|
|
Corporate Investments |
(96 |
) |
|
(82 |
) |
|
|
|
Total segment earnings from operations |
5,004 |
|
|
4,634 |
|
|
|
|
Corporate and unallocated costs and other |
(404 |
) |
|
(200 |
) |
|
|
|
Stock-based compensation expense |
(297 |
) |
|
(268 |
) |
|
|
|
Restructuring and other charges |
(275 |
) |
|
(132 |
) |
|
|
|
Acquisition-related charges |
(35 |
) |
|
(123 |
) |
|
|
|
Amortization of intangible assets |
(116 |
) |
|
(80 |
) |
|
|
|
Interest and other, net |
(1,354 |
) |
|
(818 |
) |
|
|
|
Total earnings before taxes |
$ |
2,523 |
|
|
$ |
3,013 |
|
|
|
(a) Effective at the beginning of its first quarter
of fiscal year 2019, HP implemented an organizational change to
align its business unit financial reporting more closely with its
current business structure. The organizational change resulted in
the transfer of certain Samsung-branded product categories from
Commercial to Consumer within the Printing segment. HP reflected
this change to its business unit information in prior reporting
periods on an as-if basis. The reporting change had no impact to
previously reported segment net revenue, consolidated net revenue,
earnings from operations, net earnings or net EPS.
(b) "NM" represents not meaningful.
(c) Pursuant to adoption of ASU 2017-07,
“Compensation - Retirement Benefits (Topic 715): Improving the
Presentation of Net Periodic Pension Cost and Net Periodic
Post-retirement Benefit Cost”, in the first quarter of fiscal year
2019, HP now reclassifies all components (excluding service cost
component) of net periodic benefit cost from Selling, general and
administrative expenses to Interest and other, net. HP reflected
this change in prior reporting periods on an as-if basis
| |
|
HP INC. AND SUBSIDIARIESSEGMENT OPERATING MARGIN
SUMMARY(Unaudited) |
| |
| |
Three months ended |
|
Change in Operating Margin (pts) |
|
|
October 31, 2019 |
|
July 31, 2019 |
|
October 31, 2018 |
|
Q/Q |
|
Y/Y |
| Segment operating
margin:(a) |
|
|
|
|
|
|
|
|
|
|
Personal Systems |
5.3% |
|
5.6% |
|
3.7% |
|
(0.3)pts |
|
1.6pts |
|
Printing |
15.6% |
|
15.6% |
|
16.0% |
|
— |
|
(0.4)pts |
|
Corporate Investments(b) |
NM |
|
NM |
|
NM |
|
NM |
|
NM |
|
Total segments |
8.5% |
|
8.8% |
|
7.8% |
|
(0.3)pts |
|
0.7pts |
(a) Effective at the beginning of its first quarter
of fiscal year 2019, HP implemented an organizational change to
align its business unit financial reporting more closely with its
current business structure. The organizational change resulted in
the transfer of certain Samsung-branded product categories from
Commercial to Consumer within the Printing segment. HP reflected
this change to its business unit information in prior reporting
periods on an as-if basis. The reporting change had no impact to
previously reported segment net revenue, consolidated net revenue,
earnings from operations, net earnings or net EPS.
(b) "NM" represents not meaningful.
| |
|
HP INC. AND SUBSIDIARIESCALCULATION OF DILUTED NET EARNINGS
PER SHARE(Unaudited)(In millions, except per share amounts) |
| |
| |
Three months ended |
| |
October 31, 2019 |
|
July 31, 2019 |
|
October 31, 2018 |
| Numerator: |
|
|
|
|
|
|
GAAP net earnings |
$ |
388 |
|
|
$ |
1,179 |
|
|
$ |
1,451 |
|
|
Non-GAAP net earnings |
$ |
899 |
|
|
$ |
880 |
|
|
$ |
865 |
|
| |
|
|
|
|
|
| Denominator: |
|
|
|
|
|
|
Weighted-average shares used to compute basic net earnings per
share |
1,476 |
|
|
1,499 |
|
|
1,578 |
|
|
Dilutive effect of employee stock plans(a) |
10 |
|
|
9 |
|
|
20 |
|
|
Weighted-average shares used to compute diluted net earnings per
share |
1,486 |
|
|
1,508 |
|
|
1,598 |
|
| |
|
|
|
|
|
| GAAP diluted net earnings per
share |
$ |
0.26 |
|
|
$ |
0.78 |
|
|
$ |
0.91 |
|
| Non-GAAP diluted net earnings
per share |
$ |
0.60 |
|
|
$ |
0.58 |
|
|
$ |
0.54 |
|
(a) Includes any dilutive effect of restricted stock
units, stock options and performance-based awards.
| |
|
HP INC. AND SUBSIDIARIESCALCULATION OF DILUTED NET EARNINGS
PER SHARE(Unaudited)(In millions, except per share amounts) |
| |
| |
Twelve months ended |
| |
October 31, 2019 |
|
October 31, 2018 |
| Numerator: |
|
|
|
|
GAAP net earnings |
$ |
3,152 |
|
|
$ |
5,327 |
|
|
Non-GAAP net earnings |
$ |
3,409 |
|
|
$ |
3,306 |
|
| |
|
|
|
| Denominator: |
|
|
|
|
Weighted-average shares used to compute basic net earnings per
share |
1,515 |
|
|
1,615 |
|
|
Dilutive effect of employee stock plans(a) |
9 |
|
|
19 |
|
|
Weighted-average shares used to compute diluted net earnings per
share |
1,524 |
|
|
1,634 |
|
|
|
|
|
|
|
GAAP diluted net earnings per share |
$ |
2.07 |
|
|
$ |
3.26 |
|
|
Non-GAAP diluted net earnings per share |
$ |
2.24 |
|
|
$ |
2.02 |
|
(a) Includes any dilutive effect of restricted stock
units, stock options and performance-based awards.
Use of non-GAAP financial measuresTo supplement
HP’s consolidated condensed financial statements presented on a
GAAP basis, HP provides net revenue on a constant currency basis,
non-GAAP total operating expense, non-GAAP operating margin,
non-GAAP tax rate, non-GAAP net earnings, non-GAAP diluted net EPS,
free cash flow, gross cash and net cash (debt). HP also provides
forecasts of non-GAAP diluted net EPS and free cash flow.
These non-GAAP financial measures are not computed in accordance
with, or as an alternative to, GAAP in the United States.
Reconciliations of these non-GAAP financial measures to the most
directly comparable GAAP financial measures are included in the
tables above or elsewhere in the materials accompanying this news
release.
Use and economic substance of non-GAAP financial
measuresNet revenue on a constant currency basis excludes
the effect of foreign currency exchange fluctuations calculated by
translating current period revenues using monthly average exchange
rates from the comparative period and excluding any hedging impact
recognized in the current period. Non-GAAP operating margin is
defined to exclude the effects of any amounts relating to
restructuring and other charges, acquisition-related charges, and
amortization of intangible assets. Non-GAAP net earnings and
non-GAAP diluted net EPS consist of net earnings or diluted net EPS
excluding those same charges, defined benefit plan settlement
charges, non-operating retirement-related (credits)/charges, debt
extinguishment cost, tax adjustments and the amount of additional
taxes or tax benefits associated with each non-GAAP item. HP’s
management uses these non-GAAP financial measures for purposes of
evaluating HP’s historical and prospective financial performance,
as well as HP’s performance relative to its competitors. HP’s
management also uses these non-GAAP measures to further its own
understanding of HP’s segment operating performance. HP believes
that excluding the items mentioned above for these non-GAAP
financial measures allows HP’s management to better understand HP’s
consolidated financial performance in relation to the operating
results of HP’s segments, as HP’s management does not believe that
the excluded items are reflective of ongoing operating results.
More specifically, HP’s management excludes each of those items
mentioned above for the following reasons:
- Restructuring and other charges are (i) costs associated with a
formal restructuring plan and are primarily related to employee
termination and early retirement costs and related benefits, costs
of real estate consolidation and other non-labor charges; and (ii)
other charges, which include non-recurring costs that are distinct
from ongoing operational costs. HP excludes these restructuring and
other charges (and any reversals of charges recorded in prior
periods) for purposes of calculating these non-GAAP measures
because HP believes that these costs do not reflect expected future
operating expenses and do not contribute to a meaningful evaluation
of HP's current operating performance or comparisons to HP's
operating performance in other periods.
- HP incurs cost related to its acquisitions, which it would not
have otherwise incurred as part of its operations. The charges are
direct expenses such as third-party professional and legal fees,
and integration-related costs, as well as non-cash adjustments to
the fair value of certain acquired assets such as inventory. These
charges related to acquisitions are inconsistent in amount and
frequency and are significantly impacted by the timing and nature
of HP's acquisitions. HP believes that eliminating such expenses
for purposes of calculating these non-GAAP measures facilitates a
more meaningful evaluation of HP's current operating performance
and comparisons to HP's past operating performance in other
periods.
- HP incurs charges relating to the amortization of intangible
assets. Those charges are included in HP’s GAAP earnings, operating
margin, net earnings and diluted net EPS. Such charges are
significantly impacted by the timing and magnitude of HP’s
acquisitions and any related impairment charges. Consequently, HP
excludes these charges for purposes of calculating these non-GAAP
measures to facilitate a more meaningful evaluation of HP’s current
operating performance and comparisons to HP’s operating performance
in other periods.
- Non-operating retirement-related (credits)/charges includes
certain market-related factors such as interest cost, expected
return on plan assets, amortized actuarial gains or losses, and
impacts from other market-related factors associated with HP’s
defined benefit pension and post-retirement benefit plans. The
market-driven retirement-related adjustments are primarily due to
the changes in pension plan assets and liabilities which are tied
to financial market performance and HP considers these adjustments
to be outside the operational performance of the business.
Non-operating retirement-related (credits)/charges also include
certain plan curtailments, settlements and special termination
benefits related to HP’s defined benefit pension and
post-retirement benefit plans. HP believes that eliminating such
adjustments for purposes of calculating non-GAAP measures
facilitates a more meaningful evaluation of HP's current operating
performance and comparisons to HP's operating performance in other
periods.
- HP incurred defined benefit plan settlement charges relating to
the U.S. HP pension plan. The charges are associated with the net
settlement and remeasurement resulting from voluntary lump sum
payments offered to certain terminated vested participants. HP
excludes these charges for the purposes of calculating these
non-GAAP measures to facilitate a more meaningful evaluation of
HP’s current operating performance and comparisons to HP’s
operating performance in other periods.
- HP incurred debt extinguishment costs related to the March 2018
repurchase of certain of its outstanding U.S. dollar global notes.
These costs primarily included bond repurchase premiums and losses
from fair value hedges. HP excludes these costs for the purposes of
calculating these non-GAAP measures to facilitate a more meaningful
evaluation of HP's current operating performance and comparisons to
HP's operating performance in other periods.
- Tax adjustments include U.S. tax reform adjustment and net tax
indemnification amounts.
- HP recorded U.S. tax reform adjustment as one-time charges
relating to the enactment of the Tax Cuts and Jobs Act of 2017.
These charges encompass several elements, including the reversal of
previously accrued taxes on unrepatriated overseas profits, a
one-time transition tax on accumulated overseas profits and the
revaluation of deferred tax assets and liabilities to the new U.S.
tax rate. HP has completed the accounting for the tax effects of
the Tax Cuts and Jobs Act within the one year measurement period.
However, additional guidance issued by regulators and new positions
taken or elections made by HP may materially impact the income tax
expense and effective tax rate in the period in which the
adjustments are made.
- As a part of the separation of Hewlett Packard Enterprise
Company from HP Inc. (the “Separation”), HP evaluates all tax
uncertain positions to determine the indemnification amounts under
the Tax Matters Agreement with Hewlett Packard Enterprise and
records the adjustments as net tax indemnifications amounts. In the
current quarter, HP entered into a settlement agreement with
Hewlett Packard Enterprise to terminate the Tax Matters Agreement.
As part of this settlement, HP and Hewlett Packard Enterprise
agreed to release each other from certain future claims and
liabilities arising out of or related to the Tax Matters Agreement.
HP recorded a one-time net indemnification and tax adjustments for
the quarter related to this settlement.
- HP also recorded other tax adjustment including tax benefits
and expenses related to the realizability of certain deferred tax
assets, various tax rate and regulatory changes and tax settlements
across various jurisdictions.
HP excludes these adjustments for the purposes of calculating
these non-GAAP measures to facilitate a more meaningful evaluation
of HP's current operating performance and comparisons to HP's
operating performance in other periods.
Free cash flow is a non-GAAP measure that is defined as cash
flow from operations less the net of investments in and proceeds
from sales of property, plant, and equipment. Gross cash is a
non-GAAP measure that is defined as cash and cash equivalents plus
short-term investments and certain long-term investments that may
be liquidated within 90 days pursuant to the terms of existing put
options or similar rights. HP’s management uses free cash flow and
gross cash for the purpose of determining the amount of cash
available for investment in HP’s businesses, repurchasing stock and
other purposes. HP’s management also uses free cash flow and gross
cash to evaluate HP’s historical and prospective liquidity. Because
gross cash includes liquid assets that are not included in cash and
cash equivalents, HP believes that gross cash provides a helpful
assessment of HP’s liquidity. Because free cash flow includes the
effect of investment in and proceeds from the sale of property,
plant and equipment that are not reflected in net cash provided by
operating activities, HP believes that free cash flow provides a
more accurate and complete assessment of HP’s liquidity and capital
resources. Net cash (debt) is defined as gross cash less gross debt
after adjusting the effect of unamortized premium/discount on debt
issuance, debt issuance costs and unrealized gains/losses on fair
value hedges and interest rate swaps.
Material limitations associated with use of non-GAAP
financial measuresThese non-GAAP financial measures may
have limitations as analytical tools, and these measures should not
be considered in isolation or as a substitute for analysis of HP’s
results as reported under GAAP. Some of the limitations in relying
on these non-GAAP financial measures are:
- Items such as amortization of intangible assets, though not
directly affecting HP’s cash position, represent the loss in value
of intangible assets over time. The expense associated with this
change in value is not included in non-GAAP operating margin,
non-GAAP net earnings and non-GAAP diluted net EPS, and therefore
does not reflect the full economic effect of the change in value of
those intangible assets.
- Items such as restructuring and other charges,
acquisition-related charges, non-operating retirement-related
(credits)/charges, defined benefit plan settlement charges, debt
extinguishment costs and tax adjustments that are excluded from
non-GAAP operating margin, non-GAAP net earnings and non-GAAP
diluted net EPS can have a material impact on the equivalent GAAP
earnings measure and cash flows.
- HP may not be able to immediately liquidate the short-term and
certain long-term investments included in gross cash, which may
limit the usefulness of gross cash as a liquidity measure.
Other companies may calculate the non-GAAP financial measures
differently than HP, limiting the usefulness of those measures for
comparative purposes.
Compensation for limitations associated with use of
non-GAAP financial measuresHP compensates for the
limitations on its use of non-GAAP financial measures by relying
primarily on its GAAP results and using non-GAAP financial measures
only supplementally. HP also provides robust and detailed
reconciliations of each non-GAAP financial measure to its most
directly comparable GAAP measure within this news release and in
other written materials that include these non-GAAP financial
measures, and HP encourages investors to review those
reconciliations carefully.
Usefulness of non-GAAP financial measures to
investorsHP believes that providing net revenue on a
constant currency basis, non-GAAP total operating expense, non-GAAP
operating profit, non-GAAP operating margin, non-GAAP tax rate,
non-GAAP net earnings, non-GAAP diluted net EPS, free cash flow,
gross cash and net cash (debt) to investors in addition to the
related GAAP financial measures provides investors with greater
transparency to the information used by HP’s management in its
financial and operational decision making and allows investors to
see HP’s results “through the eyes” of management. HP further
believes that providing this information better enables HP’s
investors to understand HP’s operating performance and financial
condition and to evaluate the efficacy of the methodology and
information used by HP’s management to evaluate and measure such
performance and financial condition. Disclosure of these non-GAAP
financial measures also facilitates comparisons of HP’s operating
performance with the performance of other companies in HP’s
industry that supplement their GAAP results with non-GAAP financial
measures that may be calculated in a similar manner.
Editorial contactsHP Inc. Media
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RelationsInvestorRelations@hp.com
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